International Monetary Fund has warned emerging markets, which have so far weathered the ongoing financial crisis, that they may not be completely insulated, while noting that risks to India's financial sector appeared manageable.
Ahead of the Spring Meetings of the World Bank and the IMF this weekend, the top international organisation has raised the assessment of market risks for the emerging markets including on capital flows.
"Unlike past financial crises, emerging markets have remained relatively resilient, supported by solid fundamentals, prudent macroeconomic policies, and financial cushions built up over recent years..." IMF said in its Global Financial Stability Report (GFSR).
"However, we have raised our assessment of emerging market risks, as the market turmoil has exacerbated vulnerabilities in a number of emerging markets notably in some countries in emerging Europe that had relied excessively on foreign bank credit or wholesale funding to finance rapid domestic credit expansion," it added.
It said that despite generally strong external positions, some concerns have arisen about dollar funding in Asia, particularly in Korea, Taiwan Province of China, and to an extent, in India.
"In India, some corporations have borrowed dollars and swapped the resulting debt into yen, increasing the difference between borrowing and lending rates, but leaving a large open exposure. Nevertheless, the risk to the Indian financial sector arising from these transactions currently appears manageable," the IMF has said.